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Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

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Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#61

Teslas price is just too high. I think they will be very successful and become a big, dominant car maker. But their price only makes sense if they end up being the only car maker left. That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you. For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the…

> I won't short them tough, in the end I'm just a dog on the internet and have no clue how stonks work.

To be clear, Michael Burry didn't short Tesla, he bought put options, which gives him the right but not the obligation to sell Tesla stock for a certain price, on a certain date.

If the bet works against him, his options expire worthless. This puts an upper limit on his losses.

If you have an actual short position, your potential losses are unlimited.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#62
post #28

Earlier quoted context omitted.

Actually, this will likely be unpopular here, short sellers do have an important role in the economy. In the case of GME and more recently short sellers have been making money on crushing viable businesses (which they should not be allowed) but historically they expose fraudulent companies. I don't like companies getting pushed out of business by big short sellers or making money but just publishing bad research unde…

I personally am against selling equity that you don't own. It creates so many failure modes for the equity markets (failure to deliver chief among them). And I wouldn't be surprised if the net impact of short selling were actually positive for spot price, because shorts tend to sell into strength but they often squeeze into weakness. We've gotten accustomed to short selling and buybacks, but the equity markets would…

>It creates so many failure modes for the equity markets (failure to deliver chief among them).

Has this actually caused issues? Stock prices usually go up when the economy is doing well, so when short sellers default the economy/banking system is well prepared to absorb the impact. This is as opposed to something like MBS which causes a downward spiral of "people losing their jobs -> default on mortgage -> banks pull bank loans -> business spending drops -> people losing their jobs".

>the equity markets would make far more sense if we were to outlaw [buybacks].

Why? Buybacks are equivalent to paying dividends and then reinvesting them (which most people do).

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#63
Scary.

When the truth about housing was exposed, the financial system was forced to reconcile. The system has measures in place that must be taken by policy. Ergo, the truth shatters that house of cards.

But Tesla? Meet Nikola! The fakest company ever, with no product, no development, a proven liar/scammer leadership, with failed deals and vapourware. Still. Worth. Billions.

The kids on RobinHood (and many others) are playing a different game, so the 'truth' matters less.

This is why I'm wary that market reality may not take hold for Tesla - and - that this reality is skewing a lot of other securities as well.

I almost wishing the Fed would bump up interest rates just a little to bring some reality into the markets.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#64
> Besides his “Big Short,” Burry made a killing from a long GameStop position recently as the Reddit favorite made Wall Street history with its massive short squeeze.

Except I remember reading that he sold for before the price exploded [1]. So although he made a profit, he missed out on the squeeze because he sold too early.

[1] https://markets.businessinsider.com/news/stocks/big-short-mi...

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#65

> $530 million bet > long puts against 800,100 shares I find the title misleading. Unless I misunderstand, Michael Burry has not actually put $530M of his money at risk. He's made a much smaller, leveraged bet. $530M is just the notional value.

Can someone ELI5 how this works to those of us who only buy and sell things? I've looked up the definitions, but I'm curious about the purposes and practical risk/reward scenarios of this particular sort of bet.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#66

Teslas price is just too high. I think they will be very successful and become a big, dominant car maker. But their price only makes sense if they end up being the only car maker left. That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you. For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the…

And, they have a genius but an unstable genius as a CEO where no one knows what he will do next. Not sure how the stock market quantifies that.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#67
post #38

> $530 million bet > long puts against 800,100 shares I find the title misleading. Unless I misunderstand, Michael Burry has not actually put $530M of his money at risk. He's made a much smaller, leveraged bet. $530M is just the notional value.

So how would you go about making an educated reverse engineering claim on the stake at risk without knowing his other legs nor expiry dates? Is it even possible? How about a wide range?

> As of March 31, Burry owned 8,001 put contracts, with unknown value, strike price, or expiry, according to the filing.

You can't figure out his position with this information.

For example, you could buy very, very out-of-the-money puts for a penny. (Your bet would basically be: TSLA loses 95% of it's value in the next week.) My total value at risk for this bet (of 8,001 put contracts) would be $80.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#68
post #55

nb: According to the article, $530m is the notional value of his puts, not the premium he paid. 8k contracts is a fairly substantial trade on a $566 stock, but it's not as sensational as the headline makes it sound.

So how would you go about making an educated reverse engineering claim on the stake at risk without knowing his other legs nor expiry dates? Is it even possible? How about a wide range?

Realistically, if he made these trades OTC versus his prime broker, only the prime broker (ie, an investment bank) would know. That's how many of the biggest trades are done. The bank may lay off the short vol slowly, or cover it with several strikes and maturities using automated tools. The only time a bank would hedge aggressively is when they expect the customer to come back and do another piece of the same trade. Presumably if they thought the trade were extremely toxic, they would have passed on it.

If the contracts were listed, option traders would look at big trades that hit the tape without contingent stock printing simultaneously, and call the brokers that crossed those trades to ask which bank sent the order to the floor. Then they'd compare that against banks which are believed to trade with Burry, and filter to get a guess at how much he traded. This may be tough with TSLA because there is so much activity, but in smaller names where only a couple of big prints go up daily, it's pretty easy to figure out who trades what. The banks that trade options against big players get quoted on a lot of stuff that eventually trades at a different bank, so they can often infer the identity of the client when they see the print hit the tape.

CNBC, on the other hand, know nothing and simply report what they are told and what they observe in regulatory filings. Their chief function is not to break news, but rather to distribute it -- like a buddy who is very up-to-date on current events.

TL;DR You can often deduce some of the characteristics of a position, but there are ways for a very stealthy market participant to hide the characteristics of his stake.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#69
Tesla has already achieved its objective: To bring about the electric car revolution. Its secondary objective of pushing the self-driving car revolution has done so-so. How Tesla performs going forward is more of a nice-to-have, but otherwise irrelevant since the ball is now rolling and not in danger of stopping anymore.

The remaining pieces now are solar generation on building surfaces, battery tech, smart grids to route the energy efficiently, cheap space travel, cheap tunneling, and maybe hyperloop if no one picks it up.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#70
post #39

Earlier quoted context omitted.

Tesla isn't a car company, though. They even removed "Motors" from their name years ago - showing wider interest, and not just batteries. Solar roofing as well, and others. I don't hold TSLA right now, regretfully, I entered pre-split at $27 and sold at $200. I also think the current price is way too high, for what it's worth. WAY too high. But it's not at all about cars, at least not for me, when trying to justify t…

Take a look at the "Common Sense Skeptic" youtube channel. Tesla's purchase of Solar City is a scandal on itself, it was never a play on entering the solar roof business. It was just a bail out using Tesla's shareholders money to save Musks and his business partners (which were Musks cousins btw) investments. This channel also destroys all the hype surrounding Starship, it's a joy to watch.

It's quite possible for the Solar City purchase to have been executed at a terrible price that is basically crony capitalism and deserves jail time, while it simultaneously being a great value add for Tesla. Controlling solar generation, backup batteries, and car charging all at once is difficult when cobbling together pieces from vendors that don't interoperate, when there's nobody else willing to write the middle ware to connect it all.

With Tesla's ridiculous valuation, they can make all sorts of terrible purchases like that and still succeed just fine.

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